You’ve arrived at the end of your first month in Germany. You are extremely happy that you have finally been paid after a stressful relocation and a busy first month frantically figuring out how to set up health insurance and get a bank account.
If you’re curious what else is important when getting settled after moving to Germany, we’ve listed everything you need to arrange during your first 100 days.
If you’re still struggling with any of these, we can help you on a 1:1 session!
Demystifying your German payslip
Anyway, all of this has suddenly hit the ground with a bump because you’ve received your first payslip in Germany and you don’t have a clue what any of it means.
What are all of these deductions?
And all the confusing abbreviations?
How do you know if they have paid you correctly if you don’t even know what all of the items on your payslip mean, or what they stand for?
If you’re wondering how to calculate your NET from your GROSS salary, then this video explains what you need to know to be able to work this out!
We cover below a helpful summary of the most common deductions and items you will find on a typical German payslip.
Note that each employer is different, and while there are a lot of common deductions such as those listed below, it will also depend on your individual circumstances and employment contract. Things such as stock options and life insurance offered through employers can make things a little more complex, so this is just meant to guide you through the basics.
Lohnsteuer (Income tax payable on your salary)
Germany has a progressive income tax system which taxes at a higher rate once you hit certain thresholds. Perhaps unsurprisingly, this one will be the biggest deduction from your payslip.
Not to be confused with income tax in general (German: Einkommenssteuer).
If you also have income from other sources e.g. if you have some sort of self-employed gig on the side, or if you have income from interest, rental properties, dividends on stocks etc, this is also counts towards your taxable personal income.
Therefore, the terms Lohnsteuer and Einkommensteuer are not synonyms for the same thing.
Job Seekers - Boost your chances of success!
Looking for a job in Germany?
You need to have a stellar CV, cover letter and optimised LinkedIn profile.
Your international format CV won't cut it. Cover letters in Germany are also an art.
Our templates and my coaching for job seekers like you will help you to get more interviews!
Rentenversicherung (Pension insurance)
This is levied in order to cover an old age pension when an employee retires, as well as providing a basic income for anyone who is no longer deemed fit to work through incapacity.
However, it is very important to note that this is not your own individual pension plan. Rather, this is money which is being paid by the current working population in order to sustain today’s retirees. Thus, the system is highly dependent upon the working population proportionally being able to support pensioners at any given point in time.
Rentenversicherung is levied at a whopping 19.6% of gross salary, of which half is paid by the employer and half by the employee. So, 9.8% of your hard-earned is being paid into an insurance system which many believe is not long-term sustainable due to Germany’s ageing population and comparatively low birth rate.
Krankenversicherung (health insurance)
At 14.6% of your gross salary in total, this is the next biggest hitter after income tax and pension insurance. For those of you who are publicly insured, there is a 50 / 50 split between employer and employee when it comes to contributions. This will be evidenced in your payslip usually by the words AN-Anteil (employee contribution) and AG Anteil (employer contribution).
If you are privately insured, you will see something like AG-Zuschuss as a line on your payslip. This represents the 50% contribution by your employer towards your private healthcare costs. Because you are responsible for contributions for private healthcare, this is not deductible from your gross pay and as such, the employer contribution is added to your gross salary, thus enabling you to pay this in one monthly direct debit to your health insurance company. Usually this is found at the bottom of your payslip, after all of your taxes and social insurances have been deducted.
Note that if you are privately insured, your monthly premiums will be calculated according to your individual tariff as opposed to a flat % rate as is the case for the public insurance system.
For more on how German health insurance works, we have a number of articles covering this topic in much more detail. Suffice to say, it’s complex!
Pflegeversicherung (Long-term care insurance)
Similar to health insurance insofar as you can opt out of public insurance if you earn above the same threshold as for health insurance.